I have been a CPA for over 30 years focusing on taxation. I have extensive experience with partnerships, real estate and high net worth individuals.
My ideology can be summarized at least metaphorically by this quote:
"I have a total irreverence for anything connected with society except that which makes the roads safer, the beer stronger, the food cheaper and the old men and old women warmer in the winter and happier in the summer." - Brendan Behan
Nobody I work for has any responsibility for what goes into this blog and you should make no inference that they approve of it or even have read it.

All I Want For Christmas Is An AMT Patch

It is probably just as well that Congress did not pass some sort of tax bill on Friday. I would have felt obligated to study it and figure out how it might apply to various clients. This might have been upsetting to my family. So my observation of Christmas will be untroubled by tax planning and compliance. It is kind of ironic, since tax compliance, if not planning, is central to at least one of the birth narratives (Luke’s):

And it came to pass in those days, that there went out a decree from Caesar Augustus that all the world should be taxed.(And this taxing was first made when Cyrenius was governor of Syria.)And all went to be taxed, every one into his own city.And Joseph also went up from Galilee, out of the city of Nazareth, into Judaea, unto the city of David, which is called Bethlehem; (because he was of the house and lineage of David:)To be taxed with Mary his espoused wife, being great with child. And so it was, that, while they were there, the days were accomplished that she should be delivered.

Makes you wonder if that is why when Jesus picked a generally disliked profession to be kind to, it was tax collectors:

Two men went up to the temple to pray, one a Pharisee and the other a tax collector. The Pharisee stood and prayed thus with himself, ‘God, I thank You that I am not like other men–extortioners, unjust, adulterers, or even as this tax collector. I fast twice a week; I give tithes of all that I possess.’ And the tax collector, standing afar off, would not so much as raise his eyes to heaven, but beat his breast, saying, ‘God, be merciful to me a sinner!’ I tell you, this man went down to his house justified rather than the other; for everyone who exalts himself will be humbled, and he who humbles himself will be exalted.

Believe it or not, tax collectors were even more disliked back then than they are now. It happens that I’m feeling sorry for our tax collectors right now and if I am not careful I’ll start feeling sorry for myself. Among the many items caught in the current gridlock is an AMT patch. The AMT (alternative minimum tax) was originally designed to make sure that very wealthy people paid at least some income tax. Even that motivation, while having emotional logic, was kind of dumb. Congress chooses to encourage various activities like historic preservation and affordable housing by creating tax incentives. Assuming for the sake of argument that those type of incentives are a good idea, why should it matter that some people embrace them so enthusiastically that they wipe out their entire tax ?

The AMT kicks in at a certain threshold, which has not been permanently indexed for inflation. There is a budget logic as to why this has never been done. Instead Congress has “patched” the AMT on a regular basis. The IRS has come to count on them doing this. If they don’t get around to it, the IRS will have to reprogram their computers, which will delay the start of tax season. The Commissioner has given Congress a heads up on what an ugly tax season is shaping up at the moment:

This means that, absent enactment of a new patch in the near future, nearly 30 million additional taxpayers will become subject to the AMT on their 2012 income tax returns.

I want to reiterate that most taxpayers may not be able to file their 2012 tax returns until late in March of 2013, or even later.

As we consider the impact of the current policy uncertainty on the upcoming tax filing season, it is becoming apparent that an even larger number of taxpayers -80 to 100 million of the 150 million total returns expected to be filed -may be unable to file.

I’ve decided not to worry about how that might affect the tax practice I am part of and think about what the current situation means to people who live paycheck to paycheck. It has been a really long time since I have lived paycheck to paycheck. I can remember times when the number of cans of tuna fish in my cabinet was material to my net worth, but I was never in that situation while I had kids to feed. Here is what I see coming for a lot of people if Congress keeps dithering. Having just gone through a Christmas spending binge, they will find that their take home pay is down in January. The biggest lump sum they have to look forward to clean up their credit card debt is an income tax refund. That will be delayed until April thanks to the IRS needing to reprogram its computers. For some of them the lack of an AMT patch will eliminate the refund or turn it into a balance due. Not exactly pleasant Christmas thoughts, but of course there have been much tougher Christmases, like this one nearly one hundred years ago.

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For years, I’d wondered why Congress only does the annual AMT patch instead of just indexing it. Had we learned nothing of the 1970′s when inflation spiked and suddenly that fabulous 10% raise to keep pace with price just pushed us into higher tax brackets?

Ah, but then someone explained it was part of Congress’ budget game: they “patch” only one year. Thus all the “unpatched” revenue 9 years out pours into their rosy long-term budget forecasts!